“Nine out of ten clients lost money”

We’re talking retail forex trading here — through legitimate, authorised forex trading houses, not fraudsters.

Do places like the UK need hard leverage caps — like those imposed in the US — to cut the abuse of naive speculators?

The stat in the headline is from the Autorité des Marchés Financiers, the French regulator, which has made rather more effort than others in Europe in trying to combat online financial spivvery.

Survey highlights:

  • In four years, the percent of clients losing money for all providers combined is nearly 89%.
  • The average loss per client was nearly €10,900 between 2009 and 2012.
  • Over the four years, 13,224 clients together lost nearly €175 million, while the remaining 1,575 clients earned a total of €13.8 million.
  • In addition to the great majority of losing clients and the losses suffered, the study shed light on a behavioural phenomenon: individual investors learn little over time. Indeed, it appears that the most active and regular investors see their losses mount over time.

The AMF also has advertising campaign, using pop-up warnings…

But what’s actually interesting about these French numbers is that they are surprisingly small.

Let’s pluck just one firm from the scores of trading platforms out there: London-listed Plus500. As of end-June, this firm put its active customers at just over 67,000, while it was adding new customers at the rate of 10,000 a month.

The victims here, across Europe, probably top 1m hapless people, trying (and failing) to get rich quick.

Now, a simple way to rank the toxicity of a retail FX operator is to look at the leverage offered, since the greater the trading/deposit multiple the quicker the client loses — and we should point out that Plus500 (at 200 times maximum) are by no means the worst.

In the UK, for instance, you can get 500 times leverage from Alpari, FxPro, IronFX and Liquid Markets. That compares with a cap of 50 times in the US, imposed by the CFTC.

Of course, if you really want to click and lose you can always try the Russian regulated, St. Vincent-registered FBS, which offers 1000 times your deposit…

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